Published February 25, 2015
For decades, cities and states have wooed sports teams through hefty subsidies for new arenas and stadiums, sums that have grown along with the facilities’ price tags—despite the howls of economists who deem them a poor use of public money.
Critics now have fresh momentum as the Obama administration takes aim at the subsidies. President Barack Obama’s 2016 budget, presented to Congress last month, calls for barring the use of tax-exempt bonds to finance professional sports facilities. Such bonds have raised about $17 billion during the past three decades, with proceeds funding construction of major-league stadiums and arenas in cities from Seattle to Baltimore.
Other cities are weighing use of the subsidies for new facilities in coming years, including a soccer stadium in New York and a basketball arena for the Milwaukee Bucks that could use as much as $220 million in bonds.
Cities and states typically repay tax-exempt bonds over several decades with revenues from levies such as a sales or hotel tax. Investors who buy these bonds don’t have to pay taxes on their income, making the interest rates cheaper than for taxable bonds—and lowering the cost of projects.
But funding pro facilities with tax-exempt bonds merely has “shifted more of the costs and risks from the private owners to local residents and taxpayers in general,” the Treasury Department said in its budget proposal. Barring municipalities from issuing the bonds would save the federal government $542 million over 10 years, Treasury said.
The fate of the measure, tied to a larger debate about the budget, is unclear. A spokesman for the House Ways and Means Committee declined to comment on the sports-facility plan but said the committee is “considering proposals in the context of comprehensive tax reform.”
Representatives for Major League Baseball, the National Basketball Association and the National Hockey League declined to comment on the Treasury proposal, while a spokesman for the National Football League didn’t respond to a request for comment.
Whatever the result in Washington, the move adds a new element to a long-running public policy debate. Despite a near-unified view from economists and other academics that pro sports subsidies aren’t worth their costs, teams and elected officials have been remarkably effective in securing public investments in new facilities, which they typically say will drive economic development.
Research on the issue has piled up during the past two decades. The general conclusion: A city’s economy doesn’t get a bump from bringing in a new sports team or building a stadium—and scarce economic-development dollars could be put to better use with other investments.
“You’re not going to get income growth; you’re not going to get tax growth; you’re not going to get employment growth,” said Dennis Coates, an economist at the University of Maryland, Baltimore County who studies the economic effects of professional sports teams and facilities.
A 2007 study in the Journal of Sports Economics examined cities that gained professional teams. It found adding a team did “not have a positive economic impact on the local community” and didn’t raise regional incomes.
What’s more, some teams want to move after only two or three decades in a facility. The Miami Arena, a onetime home to the Miami Heat, was open just 20 years before being demolished.
Mr. Coates, who has published work with similar findings, said even in cities that lure teams from outside, the new facilities generally attract entertainment dollars that would be spent elsewhere locally.
Critics point to facilities including Yankee Stadium in New York, built across the street from its predecessor using more than $1 billion in tax-free debt. Construction was coupled with hundreds of millions of dollars in public infrastructure investment, including a new commuter-rail stop. Little real-estate development has followed.
The team and city officials said it employs 1,600 more people than the old facility and brought new parks to a poor neighborhood. “Since Yankee Stadium was built, it has lived up to what it said,” Yankees President Randy Levine said. He said the federal proposal “won’t change anything. It will, in effect, reduce economic development.”
Supporters of using tax-exempt bonds typically contend the projects will spur economic development and tax revenue, encouraging new restaurants, tourism and an influx of large salaries from players.
Case in point, backers say, is the $1 billion football stadium for the Minnesota Vikings under construction in Minneapolis, funded with nearly $500 million from the city and state using tax-exempt bonds. Planners had for decades struggled to spur development in the area near downtown. The stadium helped spark construction of $800 million in new office towers, apartments and a medical clinic, said Michele Kelm-Helgen, chairwoman of the Minnesota Sports Facilities Authority.
“I defy anyone to come here and tell us that this stadium has not generated significant economic development, and I guarantee you there is more to come,” she said.
But critics say taxpayers are getting far less for their money than in the past given facilities’ soaring costs. For instance, in addition to the Vikings stadium, the Minnesota Twins constructed a more than $500 million ballpark in 2010 with about $350 million in subsidies. The University of Minnesota built a nearly $300 million football stadium the previous year. Until recently, all three teams played in the Metrodome, built in 1982 at a cost of $68 million.
—Aaron Kuriloff contributed to this article